Going downhill: IndusInd Bank shares decline 19%, most in 4 years

Analysts believe stock will remain under pressure in near term

IndusInd Bank’s shares plummeted 19 per cent on Friday – the worst fall in over four years. The crash followed a day after the bank reported a sharp 40 per cent year-on-year (Y-o-Y) fall in its Q2FY25 consolidated net profit to Rs 1,325.45 crore.

 

The private sector lender’s market capitalisation eroded by Rs 18,500 crore to Rs 81,136 crore with the stock closing at Rs 1,042, the lowest level in over 19 months.

 

Shares of IndusInd Bank are down 28 per cent so far this month. Following the decline, the bank has dropped from the league of 10 most-valued lenders in terms of market capitalisation and slipped to 12.

 

 

“The biggest pain point is microfinance. Mind you, overall slippages at 2 per cent this quarter is not that bad. Even Kotak Mahindra Bank, Axis Bank, and ICICI (last quarter) reported those gross slippage numbers. The issue is when microfinance slips, you don’t recover much, hence losses increase. While others get away with 50-60bps overall credit costs, IndusInd Bank is stuck with 140bps,” said Suresh Ganapathy, Managing Director, Head of Financial Services Research, Macquarie Capital.

 

The Mumbai-headquartered bank’s net interest income (NII) increased by just 5 per cent Y-o-Y, but fell 1.1 per cent quarter-on-quarter (Q-o-Q) to Rs 5,347 crore. Net interest margin (NIM) contracted to 4.08 per cent from 4.29 per cent last year, and 4.25 per cent Q-o-Q.

 

Analysts blamed a cocktail of weak net interest margins, deterioration in asset quality, and high credit costs, along with surging provisions for an all-round miss in Q2 earnings and the weakest earnings growth in the sector so far by any bank. They have slashed their share price target and believe the stock will remain under pressure in the near term. 

 

"IndusInd Bank reported a weak quarter on most fronts led by higher credit costs, NIM compression, and slower fee momentum. While we appreciate IndusInd Bank's proactive stance on creating contingent buffers, we believe slower growth and clouded asset quality outlook will impact the return profile of the bank and is likely to keep stock multiples under pressure in the near term," noted analysts at JM Financial.

 

The brokerage has cut its target price to Rs 1,380 per share, from Rs 1,900, valuing the stock at 1.4-time price-to-book value based on FY26 earnings estimates.

 

"IndusInd Bank's yields slumped 26 basis points (bps) Q-o-Q to 12.31 per cent in Q2FY25, dragged by consumer banking yields (down 28bps Q-o-Q to 15.07 per cent), mainly due to inferior loan mix and adverse LDR. We estimate NIM to remain weak in the near-term due to a rise in MFI slippages," pointed out analysts at ICICI Securities with a lower target price of Rs 1,600 (vs Rs 1,900).

 

"As MFI stress is likely to be high even in Q3 and fee income is running slow for two quarters, we expect the stock to underperform even after the sharp price correction. We cut earnings per share (EPS) by 20 per cent for FY25 earnings estimates and by 15 per cent for FY26. We cut our share price target to Rs 1,290 from Rs 1,690 and downgraded the stock to 'hold' from 'buy'," said Nuvama Institutional Equities.

 

Among others, Kotak Institutional Equities has cut the target price to Rs 1,650 from Rs 1,800; Emkay Global to Rs 1,650 from Rs 1,800; and Phillip Capital to Rs 1,560 (Rs 1,830 earlier).

 

 “Progression on asset quality (microfinance business) and RBI approval for a fresh term to MD & CEO remain key near-term events to watch for,” Motilal Oswal said in its report.

 

Amid the slump, Societe Generale sold 3.9 million shares (0.5 per cent equity) of IndusInd Bank at Rs 1,071 apiece to mopup Rs 417.6 crore.  (With inputs from Shivam Tyagi and Nikita Vashisht)